The question of who will acquire Yelp Inc. (NYSE: YELP) is still on the table. No companies have stepped forward to admit that they have been courting the food finding and reviewing service. Analysts are now giving their two cents on the question, and on how to evaluate Yelp.
According to the Wall Street Journal, Yelp has been working with bankers and has been in touch with potential buyers in recent weeks. At the same time, according to Bloomberg, the potential suitors include Priceline, Yahoo, Amazon and Rakuten.
However, Sterne Agee CRT suggests that while it is hard to put a probability on whether Yelp will be sold in the near-term, the firm thinks over the longer term, Yelp will ultimately get acquired. On top of the list of a few potential buyers mentioned by Bloomberg, Sterne Agee CRT thinks Trip Advisor, Facebook, Google and Apple may also have an interest in acquiring Yelp.
Within the past few weeks, Yelp reported its first-quarter financial results. The local business review guide company posted a diluted per share loss of $0.02 on revenues of $118.5 million. In the first quarter of 2014, Yelp reported a loss of $0.04 per share on revenues of $76.41 million. The Thomson Reuters estimates for the first quarter called for earnings of $0.01 per share and revenue of $119.98 million.
Average monthly mobile unique visitors grew 29% year over year to approximately 79 million, and average monthly desktop unique visitors declined 3% year over year to approximately 80 million. Average monthly unique visitors (desktop and mobile web) grew 8% year over year to approximately 142 million.
Sterne Agee CRT detailed a few different ways that buyers may evaluate Yelp:
Enterprise Value (EV) to Sales. YELP shares are currently trading at ~6x 2015 and ~4x 2016 on EV to sales (street estimates) basis. This is a 16% and 14% premium to the online advertising peer group based on 2015 and 2016 estimates respectively. Comparing Yelp to its peers on a growth-rate adjusted basis, the premium on 2016 estimates is closer to 10%. Assuming a buyer would be willing to pay as much as a 30% premium for Yelp compared to its peer group on a growth-rate adjusted basis, we think the takeout price could be around $60 per share.
EV to EBITDA. Yelp shares are currently trading at ~33x 2015 and ~21x 2016 on EV to EBITDA (street estimates) basis. This is a 39% and 40% premium to the online advertising peer group based on 2015 and 2016 estimates respectively. Comparing Yelp to its peers on a growth-rate adjusted basis, the premium on 2016 estimates is closer to 10%. Assuming a buyer would be willing to pay as much as a 30% premium for Yelp compared to its peer group on an EV to EBITDA growth-rate adjusted basis, also suggests a takeout price of around $60 per share.
Cost Per User. As of 1Q’15, YELP had 142 million unique monthly active users, which was up 8% year over year. Yelp’s current EV of $3.3 billion implies the market is valuing Yelp at $23 per user. Facebook paid around $30 per user for Instagram in 2012 and around $42 per user for WhatsApp last year. Assuming a buyer would be willing to pay between $30 and $40 per user for Yelp would imply a takeout price between $65 and $85 per share. However, given Yelp’s user base is growing at a much slower clip compared to Instagram and WhatsApp at the time of their acquisitions, we think a valuation at the lower end of the range i.e., $30 per user ($65 per share) is more likely.
Separately, Yelp was maintained as Neutral with a $48 fair value target at Janney Capital Markets, just on Friday. The firm estimates that Yelp could fetch $55 to $70 in a strategic buyout. Credit Suisse maintained its Outperform rating and $70 price target.
The stock has a consensus analyst price target of $56.26, implying upside of 14.8% from current prices. The highest target from analysts is $79, or upside of over 61% — although the targets were moved handily lower after the most recent earnings report.
Shares of Yelp traded down 2.8% to $48.52 on Monday morning. The stock has a market cap of more than $3 billion and a 52-week trading range of $37.91 to $86.88.
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